Drop

Feeding off losses achieved during the largest single day dropin Nymex history Tuesday, natural gas prices continued loweryesterday as bear traders looked past supportive storage numbers tofocus on a warming trend expected later this week. The Februarycontract was dealt the most severe blow, tumbling 17.5 cents to$8.189. Losses were far less pronounced in the out-months asevidenced by the 12-month strip, which only slipped 5.1 cents to5.716.

The drop in demand over an extra-long holiday weekend and aforecasted trend of more moderate temperatures in some market areastowards the end of the weekend were enough to drag cash priceslower Wednesday. But due to a big last-minute screen jump and avery large storage withdrawal number, sources predicted asubstantial rebound this week.

Pressured by a steady stream of local and fund selling, naturalgas futures slid lower yesterday amid an improving winter storageoutlook and continued mild temperatures across the nation. TheNovember contract took it squarely on the chin, dropping 25.2 centsto close at $4.82, almost a dollar below its Oct. 12 high.

Buoyed by renewed storm fears and bargain buying followingThursday’s 6% price slide, natural gas futures were higher Friday,leaving traders to speculate as to whether the downward pricecorrection is complete. November received the largest boost of anymonth, recovering 6.2 cents to close at $5.186. The winter strip,followed suit, gaining a nickel to close at $5.105.

Illinois Power, now a subsidiary of leading marketer DynegyCorp., is changing its game plan, telling regulators it wants todrop out of the more conservative Midwest Independent SystemOperator (MISO) to join the Alliance Regional Transmission Operator(Alliance RTO).

Eastern points followed up on Monday’s screen drop of 15-pluscents and subsequent milder softening Tuesday by falling 15 centsor more themselves yesterday. However, the West’s continuing heatwave kept Malin and Rockies pipes generally flat while otherCalifornia points and San Juan Basin were down only a nickel or so.

With the conspicuous exception of San Juan Basin, pricescontinued to rise by about a dime or more at most points Thursday.While still firming, the market’s increases were smaller than thoseon Wednesday.

After being held to an extremely-tight, 6-cent trading range formuch of the trading session yesterday, natural gas futures cameunder a wave of selling pressure moments upon the release of freshstorage data and reacted by tumbling dramatically into the closingbell. Plumbing a new 5-week low at $3.91, the August contractfinished at $4.031, 22.6 cent lower for the day.

After three consecutive days of increasing prices, the next fivenatural gas futures contract months on the New York MercantileExchange each dumped 5-6 cents yesterday, showing a little weaknessand slightly less volatility than average over the past coupleweeks. The downticks illustrate the continued uncertainty regardingthe long-term direction of the market.